Have Shire shareholders been spooked by the US Treasury's latest threat to
close the tax inversion loophole?

Investors in Shire have taken fright that the company's takeover by AbbVie could be under threat after the US Treasury said it was considering direct action to curb tax inversions.

The £32bn Shire-AbbVie deal, agreed last month, hinges on the American drug maker's plan to move its tax base to the UK, in an increasingly popular move known as an inversion.

But the future of the deal has been thrown into doubt after the US Treasury said it was looking into whether it had the authority to block tax inversion deals without passing a bill through Congress, which is currently in deadlock over the issue.

The healthcare sector has seen a frenzy of deal-making so far this year, driven in part by American companies looking to flee the high tax regime at home. A loophole in US tax law allows new companies formed by mergers to redomicile, as long as at least a fifth of the shareholders are new.

The US Treasury's move comes amid a chorus of threats from Washington to close the loophole. US President Barack Obama recently added to the political furore, saying: "I don't care if its legal, it's wrong".

US drug store giant Walgreens may also have added to the political pressure on other companies by shunning the popular move.

Shire's 5pc drop made it the worst faller in the FTSE 100 on Wednesday. It was closely followed by Smith & Nephew, which has slid 4pc, and AstraZeneca, down 3.5pc, both of which are considered possible targets of a tax inversion deal.

Shire's share price over last three days. Source:Bloomberg

AstraZeneca was the target of a failed takeover and inversion attempt by New York-based Pfizer earlier this year, and many expect the American predator to return after the obligatory six-month cooling off period expires in November. Smith & Nephew has been at the centre of a string of takeover rumours this year, with Michigan-based Stryker admitting it was tentatively interested in a deal.

Shire repeatedly voiced concerns about the "execution risk" of a tax inversion during its takeover tussle with AbbVie. Its chairman Susan Kilsby even got AbbVie to agree to pay Shire $500m should the deal break down because of complications around its plan to move to the UK.